The Biden administration has missed its self-imposed deadline to publish updated values used to assess the costs and benefits of combating climate change that will be critical to help it justify stricter greenhouse gas mandates.
The lapsed deadline comes as prominent economists have questioned the so-called “social cost of carbon” metric, sharply criticizing the Obama administration’s value as too low to prompt the types of policies needed to curb climate change in line with the Paris climate agreement.
“The way the Obama administration did it was deeply flawed,” wrote Joseph Stiglitz, a Nobel laureate economist at Columbia University, and Nicholas Stern, an economist with the London School of Economics and Political Science, in a commentary Feb. 15.
“Even before Donald Trump became president, therefore, the world — and the U.S. in particular — was on track to do little about climate change,” they wrote. Stiglitz and Stern recommend a social cost of carbon of at least $100 per ton in a recent working paper circulated by the National Bureau of Economic Research.
BIDEN ORDERS ‘SOCIAL COST’ OVERHAUL IN BID TO REDUCE CLIMATE POLLUTION
President Biden, as part of a day-one climate executive order, directed federal agencies to review and update the social cost of carbon in an effort to reduce climate pollution. He set a 30-day deadline for an interagency working group to publish interim values for the social cost of carbon, methane, and nitrous oxide. That deadline passed on Friday.
The White House press office declined to share details publicly about when an announcement will be made.
The Biden administration is widely expected to at least return to the Obama administration social cost of carbon, set at around $50 per ton, in the near term while federal officials explore longer-term changes to the way the metric is calculated.
Under the Trump administration, federal agencies dramatically slashed that value to between $1 and $7 per ton to help it justify rolling back or weakening climate change mandates.
The Trump administration did so by changing two elements of how the social cost of carbon is calculated. It limited the social cost of carbon to look at the costs and benefits only within U.S. borders, as opposed to globally, and used a higher discount rate, which determines how to weigh the costs people incur in the present against the benefits people would feel in the future.
“The climate problem is a long-term, global problem. We are not going to solve it by taking a viewpoint which is short-term and focused only on the emissions and impacts directly in the U.S.,” said Richard Newell, president and CEO of the research firm Resources for the Future.
“The scope that was adopted by the Trump administration is antithetical to the type of climate problem itself,” he said. Newell chaired a National Academies of Sciences study in 2017 that recommended a number of changes to improve the social cost of carbon estimates. Biden’s order directed federal agencies to consider those recommendations as they set a new value.
The Biden administration is expected to reverse both of the Trump administration’s changes as part of its interim value, leading to a social cost of carbon orders of magnitude higher.
Some economists — such as Stiglitz and Stern, as well as Michael Greenstone, the former chief economist in the Obama White House who led development of the initial social cost of carbon — have called on the Biden administration to go even further in the near term. They recommend the Biden administration choose a lower discount rate from the beginning, leading to an interim value of $100 per ton or more.
The more difficult task for the Biden administration, however, will come as the interagency working group weighs a new final value for the social cost of carbon, due to be published by January 2022 per Biden’s executive order.
Already, the Biden administration faces tough challenges to update the economic models and scientific assumptions behind the original social cost of carbon.
There are major questions about how the economic models estimate the damages caused by climate change, where to set the discount rate, how the models characterize uncertainty over timescales of hundreds of years, and how the models account for the disproportionate effect climate damages will have on vulnerable people, among other issues.
But Biden’s team will also have to grapple with competing arguments from economists about whether the social cost of carbon is the most appropriate way to evaluate the benefits of reducing greenhouse gas emissions.
Stiglitz and Stern, for example, suggest a different approach might be warranted, one that evaluates the costs and benefits of policies with a specific emissions reduction target in mind. Other countries, such as the United Kingdom, have adopted that approach.
Switching approaches might be necessary if the Biden administration isn’t able to generate a “robust” social cost of carbon estimate, said Steve Rose, senior research economist at the Electric Power Research Institute, a nonpartisan electricity research firm.
Rose has raised concerns about one of the economic models used to calculate the social cost of carbon, as well as the plausibility of two of the emissions projections incorporated in the estimates.
Other economists, however, say the U.S. regulatory approach has long instituted a regime of cost-benefit analysis that requires a metric like the social cost of carbon that estimates the benefits to society of reducing emissions.
The United States also lacks a specific emissions target cemented into law, making it difficult to adopt an approach that “works backwards” from a stated climate goal, said Gernot Wagner, a climate economist and professor at New York University.
“The question of what the target should be in the first place is, in fact, subject to a benefit-cost analysis,” where the social cost of carbon is a crucial input on the benefits side, Wagner added.
Either way, the Biden team is likely to face political pressure from climate activists to set a significantly higher social cost of carbon to match the more aggressive emissions targets Biden has promised, including a carbon-free power sector by 2035.
Fixing flaws in the underlying economic calculations “almost without exception” will lead to an increase in the social cost of carbon, Wagner said.
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While many economists agree with that statement, not all do.
Rose said his concerns with some of the modeling suggest the Obama administration’s social cost of carbon should have been lower, and he cautioned it’s not a guarantee the Biden team’s final value will automatically be higher.
“There’s a risk of policy being embedded in the social cost of carbon,” Rose added. “We should avoid that.”
